Accounting Principles Flashcards
What is a balance sheet?
A snapshot of a business at any given date, showing the value of their assets, liabilities, and shareholders equity.
What does a profit and loss statement show?
A business’ income and expenses over a specific period, including revenue, cost of sales, and various profits.
What is the purpose of a cash flow statement?
To show a company’s inflows and outflows over a specific period.
What is the standard VAT rate in the UK?
20% on any supply of goods and services that is not exempt, zero rated, or subject to a reduced rate.
What is the top rate for Stamp Duty Land Tax (SDLT) on commercial property transactions?
5% applies to the extent that the consideration exceeds £250,000.
What is the corporation tax rate for profits below £50,000 in the UK?
19%.
What are the personal taxation rates for earnings between £12,571 and £50,270?
20% basic rate.
What is the additional tax rate for earnings over £125,140?
45%.
What is revenue in the context of business finance?
The money a company generates through selling a product or service.
What does capital expenditure refer to?
Funds used for one-time large purchases of fixed assets for long-term revenue generation.
What is revenue expenditure?
Ongoing operating expenses (OpEx) used in running daily business operations.
What does cash flow measure?
The net cash and cash equivalents transferred in and out of a company.
What is the purpose of auditing?
To review financial statements to ensure they are a fair and accurate representation of transactions.
What are liquidity ratios used for?
To measure a company’s ability to pay off its short-term debts.
What do solvency ratios compare?
A company’s debt levels with its assets, equity, and earnings.
What is profitability?
A situation in which a company is generating a profit.
What does insolvency refer to?
When the value of a company’s liabilities exceeds that of its assets.
What is bankruptcy?
When an individual or partnership can’t pay their debts and applies for bankruptcy, managed by courts.
What is an Individual Voluntary Arrangement (IVA)?
An arrangement where an individual arranges their debts with a creditor as an alternative to bankruptcy.
What is a Company Voluntary Arrangement (CVA)?
A rescue and restructuring option that allows a company to pay its debts over time while remaining in control.
What is compulsory liquidation?
When a company is ordered by a court to be wound-up due to unpaid debts.
What are accounting standards?
Rules and measures determining how businesses conduct their bookkeeping and accounting.
What are the two options for accepted accounting standards under ‘The Companies Act 2006’?
- UK Generally Accepted Accounting Practice (UK GAAP)
- International Financial Reporting Standards (IFRS)
What is FRS 100?
‘Application of Financial Reporting Requirements’ guiding the application of relevant standards.
What does FRS 102 cover?
‘The Financial Reporting Standard Applicable to the UK and Republic of Ireland’ with comprehensive requirements.
What is the focus of FRS 103?
Reporting and accounting requirements for entities issuing insurance contracts.
What does FRS 104 guide?
Preparation of interim financial reports.
What defines a micro-entity under FRS 105?
A company that meets two of three requirements regarding turnover, balance sheet, and number of employees.
What are Statements of Recommended Practice (SORPs)?
Accounting best practices issued by SORP-making bodies, supplementary to standards.
What is IFRS?
An international set of rules for entities’ financial statements established by IFRS Foundation and IASB.
What is the purpose of IFRS 1?
Sets out procedures for entities adopting IFRS standards for the first time.
What does IFRS 3 cover?
‘Business Combinations’ and the acquisition method for measuring fair value.
What is outlined in IFRS 5?
Accounting for non-current assets held for sale and discontinued operations.
What does IFRS 10 require?
Preparation of consolidated financial statements including controlled entities.
What is the focus of IFRS 12?
Disclosure of interests in other entities, including joint arrangements and subsidiaries.
What are the requirements for preparing a consolidated financial statement?
An entity includes other entities it controls
This involves reporting the financial positions of all controlled entities as a single entity.
What does IFRS 11: ‘Joint Arrangements’ outline?
The requirements for any entities which jointly control a venture
This standard addresses how to account for joint arrangements.
What is the focus of IFRS 12: ‘Disclosure of Interests in Other Entities’?
Disclosures regarding joint arrangements, subsidiaries, associated and structured entities
This standard ensures transparency in reporting interests in other entities.
What does IFRS 13: ‘Fair Value Measurement’ provide?
A comprehensive framework for measuring the fair value of assets using a market-based measurement
This standard aims to enhance consistency and comparability in fair value measurements.
What does IFRS 14: ‘Regulatory Deferral Accounts’ allow?
An entity to use previous GAAP accounting for certain regulatory deferral account balances when adopting IFRS
This standard facilitates a smoother transition to IFRS for certain entities.
What is the purpose of IFRS 15: ‘Revenue from Contracts with Customers’?
Determines how an IFRS reporter can recognise revenue and requires more informative disclosures
This standard aims to standardize revenue recognition practices across industries.
What does IFRS 16: ‘Leases’ specify?
How IFRS reporters can recognise, measure, disclose, and present leases
This standard changes the way leases are reported on the balance sheet.
What framework does IFRS 17: ‘Insurance Contracts’ set out?
For recognising, measuring, presenting, and disclosing insurance contracts
This standard aims to provide relevant information regarding insurance contracts.
What are current assets?
Assets that can be converted to cash within a year, including cash, accounts receivable, inventory, supplies
Current assets are critical for assessing liquidity.
What are current liabilities?
Debts that are due within a year, including notes payable, accounts payable, wages payable, interest payable
Current liabilities are important for understanding short-term financial obligations.
What is a cashflow statement?
Summary of the actual or anticipated inflows and outflows of cash in a firm over the accounting period
Often represented as an S curve on construction projects.
What is a balance sheet?
A financial snapshot showing a company’s assets, equities, and liabilities at one point in time
This document is vital for understanding the financial position of a company.
What is a profit and loss account?
Shows the income and expenditure, and the resulting profit or loss over a certain time period
This statement is essential for assessing business performance.
What is capital expenditure?
Money spent on acquiring or improving an asset, usually a one-time purchase, such as buildings or equipment
Capital expenditures are crucial for long-term investment strategy.
What is revenue expenditure?
Money spent on the day-to-day running of the business, including utility bills, staff wages, temporary office space
Revenue expenditure is necessary for operational continuity.
What are capital allowances?
A deduction from taxable profits for certain types of capital expenditure, such as plant and machinery, computer equipment, or electric cars
These allowances incentivize investment in capital assets.
How is VAT dealt with in a company account?
A separate VAT account is kept and needs to be up-to-date
Proper VAT management is essential for compliance and financial reporting.
What is VAT reverse charge?
Where payments are made net of VAT and the contractor or client pays VAT direct to HMRC instead of the supplier
This mechanism shifts the responsibility of VAT accounting.
What are the types of insolvency?
Administration, Administrative receivership, Company compulsory liquidation, Voluntary liquidation
Understanding these types is crucial for managing financial distress.
